MARKET ACTIVITY/ TRADING NOTES FOR DAY ENDING TUESDAY JUNE 16 1998 (3)
TOP STORIES
Husky to expand Saskatchewan heavy oil development
Husky Oil Ltd. announced Tuesday it will more than double the size of its heavy oil operations in Lloydminster, Sask. The Calgary oil company said the proposed expansion will increase daily production from 69,000 barrels to an ultimate potential of 150,000 barrels.
Husky, which bought the Saskatchewan government's interest in the upgrader in February for $310 million, has been saying for months it planned to expand the plant.
"This proposed project is part of Husky's continuous strategic investment in the Lloydminster area," Husky president John Lau said in a release.
"The project will help to ensure the long-term growth in heavy oil production in Saskatchewan and Alberta and bring important economic benefits to those provinces."
Husky said the expansion will cost about $500 million and create 1,450 jobs for at least a year during construction and 75 permanent jobs once the additional capacity comes on stream in 2001.
The $1.2 billion plant along the Saskatchewan-Alberta boundary grades heavy oil bought from producers and converts it to premium synthetic crude.
It currently produces about 54,000 barrels a day of synthetic crude and 15,000 barrels of oil equivalent of other products such as petroleum coke and sulphur.
Products from the plant are then used by conventional refineries to make gasoline and other fuels and raw material for the petrochemical industry.
Pending regulatory approval, Husky expects to begin the expansion in the second half of 1999, with construction completed in about two years.
More On same
Projects give heavy oil sector $1.4B lift
The Financial Post
The Canadian oilpatch received a major boost yesterday with announcements that two large oil project expansions will go ahead, despite the deepest plunge in oil prices in more than a decade.
Husky Oil Ltd., controlled by Hong Kong billionaire Li Ka-shing, unveiled plans for a $500-million addition to its heavy oil upgrader at Lloydminster, Sask. The move is expected to provide significant price relief for the Canadian energy sector by reducing the discounts on heavy oil.
"It's positive news for all heavy oil producers, certainly in Western Canada, because it reduces competition for selling a non-upgraded product," said Dick Auchinleck, president of Gulf Canada Resources Ltd., a major producer of heavy oil.
The move comes on the heels of the decision by oilsands consortium Syncrude Canada Ltd. to move ahead with $900 million in spending for the new Aurora mine. This is part of its $6-billion expansion plan for the northern Alberta project outlined last year.
"Our view is that we will see oil prices come back," said Doug Stout, Husky's vice-president of product marketing.
"The heavy oil sector is very key to our company. We view the upgrader as a key asset in the midst of that."
The expansion would increase Husky's capacity to 150,000 barrels a day, from 69,000 b/d.
Under the plan, which requires regulatory approval, construction would start next spring and completion is scheduled for mid- to late-2001.
Canada's oil industry produces 700,000 b/d to 800,000 b/d of heavy oil, about one-third of overall oil production.
A large amount of this has been shut in since last winter because it has become uneconomic at current oil prices, while a scarcity of upgrading capacity has widened the discount on heavy oil.
Heavy oil discounts, which increased to as much as US$9 this winter, have since shrunk to about US$6.
"We have removed one of the obstacles to more normalized differentials," said investment banker Tom Budd, managing partner with Griffiths McBurney & Partners in Calgary.
The Husky upgrader is one of two heavy oil upgraders in Western Canada. Refineries in the U.S. Midwest, which can handle Canadian heavy oil, are being bought by Venezuelans so they can process their own heavy crude.
The expanded upgrader would accept oil from other producers, Stout said. Husky plans to increase its heavy oil output to more than 100,000 b/d in the next five to 10 years, from about 55,000 b/d now.
The expansion, which would be funded internally, is the latest in an ambitious series of investments made by Husky in recent months as part of plans to make it the North American flagship of Li's international empire.
Earlier this year, the company bought the 50% of the upgrader it didn't own from the Saskatchewan government for $310 million.
Husky is also a 17.5%-partner in the $4.5-billion Terra Nova project, off Newfoundland.
Earlier this month, the company announced a $90-million takeover of alternative fuel retailer Mohawk Canada Ltd.
Meanwhile, Syncrude said its 10 owners approved this week $900 million in spending to develop Aurora, located north of its current facilities near Fort McMurray, Alta.
In many cases, the funds will come from Syncrude's own cash flow, but owners will reinvest more of their Syncrude revenues.
The mine's development is being accelerated by one year to provide a cushion against low oil prices.
The new mine's operating costs are $9 to $10 a barrel, compared with $14 a barrel for the present operation.
"We have to take a longer-term view of business," said Gulf's Auchinleck. The company has a 9.03% direct interest in Syncrude and manages Athabasca Oil Sands Investment Inc., which owns 11.74%.
"The thing people need to understand about Syncrude is that it's a pretty unique asset. There is no exploration risk. It's got perpetual reserves, and Syncrude has a track record of continuing to reduce its operating costs and improving its production performance."
The new mine, which is scheduled to be in operation by 2000, will increase Syncrude's sweet blend production to 297,000 b/d, up from 219,000 b/d.
Poco buys Canrise Resources for $97M in stock
The Financial Post
Poco Petroleums Ltd. said yesterday it is buying Canrise Resources Ltd. for $97 million in stock.
The friendly takeover was announced before the market opened. Poco will issue 0.3845 of a common share for each Canrise share, increasing the number of shares outstanding by 5%.
The agreement includes assuming $38 million of the junior's debt.
Poco president Craig Stewart said the move enhances his company's focus on natural gas, particularly in a core area of west-central Alberta.
"Our view of natural gas is still very positive, very bullish," he said during a conference call with analysts and reporters. "We think we're probably better set right now to enjoy a very strong natural gas price going into next winter."
John Ferguson, vice-president and chief financial officer of Poco, said the deal is neutral on cash flow and earnings this year, and should add slightly to cash flow in 1999.
Reaction to the announcement was mixed as analysts liked the deal, while investors punished Poco. Its shares (POC/TSE) fell 30› to close at $13.20, while Canrise's stock (CRE/TSE) rose 30› to close at $4.95. About 1.1 million Canrise shares changed hands, more than 14 times the average of the past three months.
Alan Ward, a Calgary consultant with brokerage Dlouhy Investments Inc., said the purchase strengthens Poco's competitive lead in western Alberta. "The future of the basin, aside from heavy oil, which is under a dark cloud these days, lies in the deeper western portion and this acquisition makes a lot of sense."
Canrise produces 4,200 barrels of oil equivalent a day, made up of 71% gas, and owns 48,400 hectares of undeveloped land. Poco expects to average 5,000 b/d from the properties over the next 12 months, while saving $4 million in administrative costs because of overlap.
Gas prices have softened in recent months, a predictable outcome of weak winter demand because of warm temperatures, Stewart said. He expects prices will increase this winter because not enough gas wells are being drilled to fill existing and new pipelines coming into services.
Investors have generally agreed with Poco's executives. The company's shares hit a 52-week high of $17.25 on May 4 and have climbed 3.5% this year. In comparison, oil-oriented Renaissance Energy Ltd. has slumped 26%.
Canrise's liabilities are expected to leave Poco with yearend debt of about $890 million after asset sales of $120 million, Ferguson said.
The oilpatch feeding frenzy will continue as juniors and intermediates are hurting from lack of cash and high debt, analysts said.
Terry Peters, a Toronto stock watcher with Griffiths McBurney & Partners, said these companies have to prove to their bankers and the market they can survive in today's tough environment.
With low oil prices and a weak C$, large deals with U.S. buyers are another possibility. "As you go up in size, the more strategic questions become important, particularly if you're an American company looking at Canada," he said.
The list of potential takeover targets is long, but one confirmed seller is on the block. Summit Resources Ltd. put itself in play last month but no buyer has yet stepped forward. Another analyst, who declined to be named, identified Barrington Petroleum Ltd., Crestar Energy Inc. and Ranger Oil Ltd. as up for sale.
ATCO to reorganize gas subsidiaries
Calgary Herald
Plans by Alberta's largest natural gas utility to reorganize its two gas subsidiaries is not expected to have a major impact on consumers.
Industry analysts say the restructuring of Calgary-based ATCO's Canadian Western Natural Gas Co. Ltd. and Northwestern Utilities Ltd. announced Tuesday is primarily one of internal restructuring.
The move is unlikely to affect gas prices, said one analyst.
"I think it's a move that, from a management perspective, just makes good sense," said an analyst who follows the sector but asked not to be identified. "But I don't think it will mean tremendous savings."
ATCO wants to divvy up operations at Calgary-based Canadian Western Natural Gas and Northwestern Utilities of Edmonton and create two new firms.
The Edmonton office will now focus on gas distribution throughout the province, while the Calgary-based operations will concentrate on gas transmission.
Currently, the two companies handle both transmission and distribution in the northern and southern halves of the province respectively.
"What the merge does is streamline the lines of business," said Nancy Southern, deputy chairwoman of ATCO.
Southern said the move will improve service for customers and prepare ATCO for new competition in Alberta's deregulated energy sector.
"It's a pre-emptive move," she said. "Distribution in gas has been deregulated . (and) we want to be well prepared."
She said resulting job losses would be "minimal," adding that a number had not yet been determined. Most of the layoffs would occur at an administrative level. The companies employ about 2,150 people.
The merger is expected to be completed by next year, pending approval by the Alberta Energy and Utilities Board. The two new companies are not expected to be named until next fall.
END TUESDAY REPORT
|
